Alternatives to Early Pension Withdrawal
If you’re considering withdrawing your pension early because you are experiencing financial difficulties, there are other options available.
For instance, you could consider releasing equity from your home, downsizing, or restructuring your debts.
If you’re struggling with debt, you may be able to get help from a debt advice service. They can provide free, confidential advice and help you to understand your potential options. Make sure you explore all alternatives before deciding to withdraw your pension early.
Navigating Serious Illness
If diagnosed with a serious illness and life expectancy under 12 months, you may qualify to withdraw the entire pension pot tax-free. Conversely, conditions apply to surrounding factors such as age and prior withdrawals.
Remember that verifying eligibility with your provider is crucial, as rules vary depending on the pension scheme.
Taking your pension as a lump sum in the event of serious illness can provide you with financial security. However, it’s crucial to understand the potential tax implications.
As mentioned previously, whilst the first 25% of the lump sum is typically tax-free, the rest is often taxable.
It’s also important to consider how taking your pension as a lump sum could affect any benefits you’re entitled to. Some benefits are means-tested, meaning that they consider your income and savings.
This will include any lump sum you receive from your pension, which could disqualify you from benefits depending on how much money you receive.
Early Retirement and Your Pension
Retirement age is a personal decision and will depend on various factors, including your health, financial situation, and lifestyle goals. Consequently, you should consider these factors carefully when planning your retirement.
If you’re considering early retirement, seeking financial advice is often a good idea. A financial adviser can help you to understand your options, providing a plan to ensure that your pension savings will provide for you throughout your retirement.
It might be useful to remember that whilst you can start taking money out of your pension from the age of 55, you don’t actually have to retire.
Many people choose to continue working, whilst also drawing money from their pension. This can provide additional income, allowing you to build up your pension pot for longer.